The concept of bounded rationality refers to what limitation in decision making?

Bounded rationality is a significant concept in decision-making theory, highlighting the limitations individuals face when processing information and making choices. It acknowledges that decision-makers do not possess infinite time, information, or cognitive resources, which greatly influences their ability to make fully rational decisions. Instead, individuals often must work within constraints such as time pressures and financial limitations when evaluating options. This means that their rationality is "bounded" by these factors, leading to satisfactory rather than optimal decision outcomes.

In practice, this concept illustrates that people may rely on heuristics or simplified decision-making strategies instead of thoroughly analyzing all possible alternatives due to these constraints. By recognizing bounded rationality, one can understand that real-world decisions frequently deviate from ideal rational models, highlighting the influence of practical limitations on everyday choices.